Avoid These Common Sell-Side M&A Mistakes
Selling a company is no small feat. It can be time-consuming and stressful. It demands meticulous planning, competent advice, and a keen understanding of the dynamics of negotiation and deal-making. CEOs and companies inexperienced in the M&A process commonly make mistakes that can undermine a deal, resulting in a less favorable price—or even kill the deal outright.
- Having unrealistic expectations about the time and effort the deal will demand of you. Deal-making takes time and expertise.
- Not creating a competitive bidding process. You must make your business appealing to multiple buyers to drive up the price.
- Poorly-crafted or nonexistent NDAs. Confidentiality is money when it comes to deal-making.
- An incomplete or nonexistent online data room. Buyers need ready access to key information to review for due diligence. If they can’t access this information, they may move on.
- Hiring the wrong lawyer. A generalist or your in-house attorney will likely lack the expertise to see the deal to completion. Work with an M&A expert or you’ll be at a marked disadvantage.
- Not negotiating the terms of engagement with your expert team. Compensation and other factors are up for negotiation. If you simply accept a contract at face value, you’ll get less favorable terms.
- Not working with expert advisors. You need a skilled M&A / Business Broker who can assist you in valuation, drawing up key documents, and negotiating the deal.
- Not understanding market comparables or your competition. Which businesses are truly comparable, and why? If you can’t answer this, you’ll be at a disadvantage at the negotiating table.
- No disclosure schedule. The complete disclosure schedule must be ready well in advance. This sets expectations and can act as a deal timeline.
- Incomplete records, books, or contracts. When due diligence slows, so too does momentum. This can tank the deal or lower valuation.
- Not negotiating a letter of intent. Many key deal terms can be negotiated ahead of time in the form of a letter of intent. This document protects all sides, and there’s no reason not to have it.
- Failing to understand that wasted time is the enemy of every potential deal.
- Neither negotiating nor examining an acquisition agreement. The right acquisition agreement extends significant protections.
- Not allowing an experienced M&A advisor to take the lead in negotiations. You’re a novice. Your advisor is an expert. Lean on them.
- Not considering how the deal structure might weigh on tax issues.
- Neglecting daily operations while you try to manage the deal.
- Poor negotiation that doesn’t address long-term vision or cultural fit.
- Financial projections that aren’t rooted in reality.
- Not adding change of leadership provisions into key contracts. Consider also how the wording of current contracts may constrain your options.
- Not addressing employee issues, and failing to consider what steps will keep employees happy and on board.
- Failing to understand the power dynamics of negotiations.
It’s a lot to consider. For many business owners, it’s simply too much. This is why we advise always having a skilled, experienced M&A team in your corner. Anything less puts you at a disadvantage from the very beginning.
About Certified Business Brokers
Certified Business Brokers, established in 1974 with headquarters in Houston, Texas is one of the pioneers of the business brokerage profession and is one of the oldest and largest business brokerage firms in the U.S. Having assisted thousands of owners in the sale of their businesses, our team of professionals has over 230 years of collective experience closing business transactions in excess of $1 billion in revenues. We work as a group to bring buyers and sellers together. Our referral base consists of a large network of transaction-experienced attorneys and accountants, financial planners, lenders who provide financing for business acquisitions, past satisfied clients and customers, industry suppliers, trade associations, and commercial real estate firms.